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Financing Your Research in Alternative Energy

As in most other fields, researchers needing funds for their alternative-energy investigations often look to government and private sources. Since the 1970's at least, the U.S. federal government has had an interest in alternative sources of energy, although funding for those efforts has risen and fallen with economic conditions, fuel prices, and political administrations, among other factors. Recently, high oil prices have renewed interest in alternative energy research. One consequence of the recent surge in oil prices is the Energy Policy Act of 2005, which offers a series of grants and tax incentives to encourage development and investment in alternative energy sources: biofuels, forest biomass, wind, solar, and geothermal.

For research on alternative energy, government is by far the main funder in the United States. Perhaps because energy-related research tends to be expensive, philanthropic support for energy research is rare. Scientists can, however, find private investment for research, especially when the research has a direct commercial application. This guide will highlight some of the leading sources for alternative energy research funding and describe the priorities of each one.

Government funding

Department of Energy

The lead government agency on energy research is, of course, the U.S. Department of Energy (DoE), which has been a major funder of energy research since its inception in 1977. The administration has requested, and Congress seems likely to fund, an increase of at least 15% for DoE's Office of Science for Fiscal Year (FY) 2007, which begins on 1 October 2006. The FY 2007 request includes nearly $150 million each for new initiatives in biofuels and solar energy, and $288 million for hydrogen fuels.

Although many of DoE's research activities take place at DoE labs, DoE also funds a wide-ranging extramural program of basic research. These programs are funded from its Office of Science. Researchers can explore DoE's funding priorities and research directions via a series of online reports from recent DoE workshops.

So far in 2006, the Office of Science has released announcements for basic research in hydrogen fuel and solar energy utilization. Although the 2006 deadlines for preliminary letters of intent have passed for both of these solicitations, these projects represent large-scale initiatives that will stretch over a number of years. The Office of Science has a continuing open solicitation for energy-related research that includes the basic energy sciences covering alternative and renewable technologies. Researchers can submit proposals under this solicitation at any time.

The Department’s R&D initiatives involving applied--as opposed to basic--renewable energy research are supervised by the Office of Energy Efficiency and Renewable Energy (EERE), which covers biomass, geothermal, hydrogen, ocean, solar, and wind. EERE oversees the National Renewable Energy Laboratory in Golden, Colorado, which is also the site for its Golden Field Office. This field office acts as the catalyst for partnerships with academia, business, and state and local governments to develop and commercialize renewable energy technologies.

John Kersten, manager of the Golden Field Office, says the office has some 1000 active agreements with academia and industry, supporting about $300 million a year in R&D projects. Kersten notes that the office operates nationwide, with its partnerships ranging from “mom and pop start-up companies to the Big 3 automakers and Fortune 500 companies.”

A program managed by Kersten’s staff that includes academic participation is the Biomass Research and Development Initiative. The 2006 solicitation will award up to $2.5 million per project for R&D to encourage biomass feedstock production (the raw materials for biofuels), develop technologies to convert cellulosic biomass into intermediate products for further conversion into biofuels, and diversify biomass into other marketable products, making them more commercially attractive. The 2006 solicitation closed in June, but the government’s biomass program, operated jointly with Department of Agriculture, generates a number of related funding opportunities during the year.

Researchers in these and other energy fields should register at DoE’s e-Center or Grants.gov, the government-wide funding portal, to keep up-to-date on new opportunities.

National Science Foundation

The other major federal funder for alternative energy research is National Science Foundation. NSF does not have a program that focuses specifically on alternative energy, but its support for this field extends across its directorates. In 2005, for example, NSF awarded grants for research into chemical bonds to improve storage of solar energy, cell biology to study bacteria’s ability to filter hydrogen gas for fuel cells, and engineering for the generation of electrical power from ocean wave currents.

Government agencies with large R&D budgets reserve a portion of these budgets for small businesses. Two programs government-wide govern these small business set-asides: Small Business Technology Transfer (STTR) and Small Business Innovation Research (SBIR). STTR grants require a university or other not-for-profit organization to partner with the business, which make it possible for faculty members to participate. In the case of SBIR grants, principal investigators are employed directly by the business.

So far, only limited funding in the field of alternative energy research is available from non-government foundations. One such private source of research support is the Petroleum Research Fund, managed by American Chemical Society. Although the name of the fund may suggest something very different, the fund’s director has determined that its scope includes “fundamental research in alternative energy areas such as hydrogen production and storage, photovoltaics, fuel cells, and others.” The fund’s next deadline for proposals is 4 August 2006. ScienceCareers’s Grant Doctor tells more about the fund in a June 2006 column.

Private investment

The combination of government incentives plus the rise in worldwide energy costs have created a buzz for alternative energy in the investment community. The Renewable Energy Policy Network estimated that in 2004, investments in renewable energies worldwide totaled some $30 billion. The report credits incentives from government, like those in the Energy Policy Act of 2005. The Environmental Entrepreneurs group reported $590 million in alternative energy-related venture-capital investments in 2005.

Can research scientists tap into this pool of investment capital? Brian J. Fratus, President of Artemis Energy Fund thinks researchers who want to try the entrepreneur route can succeed, but only if they remember that investors bring a different set of values to the table. Fratus, whose company puts together financing for alternative energy companies including startups, said in June that “private sector companies ... do not invest to be green. They invest to earn returns in their core businesses for shareholders.” To be successful in this world, researchers will need to learn to focus on profits.

Fratus lists biofuels, solar, wind, and fuel cells as technologies that are particularly enticing to investors. He notes, however, that the investment climate for alternative energy R&D can fluctuate with the price of traditional fossil fuels. “In electric power,” Fratus says, “the price of natural gas is the big driver,” and since fall 2005 the wholesale price of natural gas--though its still high in historical terms--has fallen significantly.

Fratus warns as well that today's private investors, including individual "angel" investors and venture capitalists (VCs) who represent investment funds, are more cautious than they were a few years ago. “VCs are more risk averse,” says Fratus. “This is not like before. They want to see some revenue first.”

Despite the increased caution, Fratus still likes to work with “the stereotypical mad scientist, even if he has nothing more than a concept” in mind. Fratus sees his role as an early stage advisor, “taking a small equity position” and helping young companies through the pre-revenue stage. At that point, they can make a better case before the angel and VC communities.